Gap Inc&nbsp;said on Thursday Chief Executive Officer Art Peck will leave the company, a surprise exit in the middle of a restructuring that comes as the apparel retailer slashed its full-year earnings forecast, sending its shares down 7%.

Since taking the helm in 2015, Peck has tried to re-energize sales at the Gap brand, once a trendsetter with its casual logo-emblazoned hoodies and Khaki cargos, but it has recently struggled to keep pace with fast-fashion rivals such as Zara and H&amp;M.

On Thursday, the company estimated a 4% drop in third-quarter same-store sales, with declines across all its key brands including Old Navy.

The drop comes as the Gap brand also has heavily discounted in a competitive retail environment.

"Gap's whole portfolio is having a brand erosion crisis that we expect to only deepen with the current leadership vacuum," said Camilla Yanushevsky, research analyst at CFRA.

Earlier this year, Gap said it will separate its better-performing Old Navy brand and shutter about 230 stores of its namesake apparel business, a process likely to be completed by 2020.

Peck, who was to head the new Gap Inc, is credited with developing the company's "omni-channel" strategy that uses its retail stores and its digital platform to fulfill orders.

"Peck deserves a lot of credit for decisive corrective action and starting to rationalize the retail store base and deserves credit for streamlining the supply chain in a challenging international environment," said Burt Flickinger, managing director of Strategic Resource Group.

"Where he missed was their marketing and merchandising and pricing and promotional program."

Robert Fisher, a member of the founding family behind Gap and its non-executive board chairman, will become the chief executive officer on an interim basis, effective immediately, the company said.

But the company's dismal forecasts indicated that Peck's efforts are yet to yield results.

Gap also now expects full-year adjusted earnings per share of $1.70 to $1.75, down from its previous forecast of $2.05 to $2.15.

The quarter was "challenging", Chief Financial Officer Teri List-Stoll said, adding macro impact and slower traffic deepened the hit from product and operating challenges across key brands.

"(The) results also reiterate our skepticism that the spin-off of touted stronghold Old Navy can unlock value," analyst Yanushevsky said.

Shares of the company were down 7.4% at $16.71 in extended trading. The stock has lost nearly a third of its value this year.

Gap Inc said on Thursday Chief Executive Officer Art Peck will leave the company, a surprise exit in the middle of a restructuring that comes as the apparel retailer slashed its full-year earnings forecast, sending its shares down 7%.

Gap Inc said on Thursday Chief Executive Officer Art Peck will leave the company, a surprise exit in the middle of a restructuring that comes as the apparel retailer slashed its full-year earnings forecast, sending its shares down 7%. Since taking the helm in 2015, Peck has tried to re-energize sales at the Gap brand, once a trendsetter with its casual logo-emblazoned hoodies and Khaki cargos, but it has recently struggled to keep pace with fast-fashion rivals such as Zara and H&M. On Thursday, the company estimated a 4% drop in third-quarter same-store sales, with declines across all its key brands including Old Navy. The drop comes as the Gap brand also has heavily discounted in a competitive retail environment. "Gap's whole portfolio is having a brand erosion crisis that we expect to only deepen with the current leadership vacuum," said Camilla Yanushevsky, research analyst at CFRA. Earlier this year, Gap said it will separate its better-performing Old Navy brand and shutter about 230 stores of its namesake apparel business, a process likely to be completed by 2020. Peck, who was to head the new Gap Inc, is credited with developing the company's "omni-channel" strategy that uses its retail stores and its digital platform to fulfill orders. "Peck deserves a lot of credit for decisive corrective action and starting to rationalize the retail store base and deserves credit for streamlining the supply chain in a challenging international environment," said Burt Flickinger, managing director of Strategic Resource Group. "Where he missed was their marketing and merchandising and pricing and promotional program." Robert Fisher, a member of the founding family behind Gap and its non-executive board chairman, will become the chief executive officer on an interim basis, effective immediately, the company said. But the company's dismal forecasts indicated that Peck's efforts are yet to yield results. Gap also now expects full-year adjusted earnings per share of $1.70 to $1.75, down from its previous forecast of $2.05 to $2.15. The quarter was "challenging", Chief Financial Officer Teri List-Stoll said, adding macro impact and slower traffic deepened the hit from product and operating challenges across key brands. "(The) results also reiterate our skepticism that the spin-off of touted stronghold Old Navy can unlock value," analyst Yanushevsky said. Shares of the company were down 7.4% at $16.71 in extended trading. The stock has lost nearly a third of its value this year.

Gap CEO exiting as forecast cut casts doubt on turnaround

Gap Inc will separate its better-performing Old Navy brand and shutter about 230 stores of its struggling namesake apparel business, in one of its biggest restructuring efforts to energize sales, sending shares surging 25 per cent on Thursday.

The company has struggled with contrasting performances of its brands. Old Navy has been a bright spot as its wide range of budget apparel made it more attractive to a broader base of customers, while its speciality Gap brand struggled in the face of competition from fast-fashion retailers and changing trends.

"It's clear that Old Navy's business model and customers have increasingly diverged from our speciality brands over time," Gap's Chairman Robert Fisher said in a statement.

The 230 Gap speciality stores the company planned to close over the next two years, along with the 68 already shut, represents nearly half of its stores, the company said.

The company also said it would boost spending on marketing and developing new products for the Gap brand, but Chief Executive Officer Art Peck stopped short of saying that the brand was in a turnaround.

"I've called the turn before. And I've eaten my words. I'm not calling a turn again. What I'm looking forward is a period-over-period improvement, and I'm quite confident and comfortable with what I'm seeing."

Gap, Athleta, Banana Republic and the remaining brands will be part of a yet-to-be-named company. The separation of Old Navy into a publicly listed company, which Gap said will be tax-free to investors, is likely to be completed by 2020.

Peck will hold the same position in the new company, while Old Navy CEO Sonia Syngal will stay on as head of the standalone firm.

Old Navy has annual sales of about $8 billion, while the other brands have combined revenue of $9 billion.

"Although the proposed spin at Old Navy will enable a sharpened strategic focus on its business priorities, it reduces the diversification the brand provides to the overall entity," said Moody's analyst Christina Boni.

The company's shares were up 24.8 per cent at $31.70 in extended trading.

Poor holiday performance

Separately, Gap reported a surprise drop in overall same-store sales for the holiday quarter, down 1 per cent compared with analysts' average estimate of a 0.3 per cent rise, according to IBES data from Refinitiv.

Ironically, the lack of same-store sales growth at Old Navy hurt fourth-quarter overall sales. The company blamed an absence of new products and macro-economic issues for a drop in traffic to the Old Navy stores during the crucial December shopping season.

Gap also warned that it expects the first half of 2019 to be more challenging than last year, due to a cold start to the year that weighed on all its businesses, particularly Old Navy.

Gap Inc will separate its better-performing Old Navy brand and shutter about 230 stores of its struggling namesake apparel business, in one of its biggest restructuring efforts to energize sales, sending shares surging 25 per cent on Thursday.

Gap Inc will separate its better-performing Old Navy brand and shutter about 230 stores of its struggling namesake apparel business, in one of its biggest restructuring efforts to energize sales, sending shares surging 25 per cent on Thursday. The company has struggled with contrasting performances of its brands. Old Navy has been a bright spot as its wide range of budget apparel made it more attractive to a broader base of customers, while its speciality Gap brand struggled in the face of competition from fast-fashion retailers and changing trends. "It's clear that Old Navy's business model and customers have increasingly diverged from our speciality brands over time," Gap's Chairman Robert Fisher said in a statement. The 230 Gap speciality stores the company planned to close over the next two years, along with the 68 already shut, represents nearly half of its stores, the company said. The company also said it would boost spending on marketing and developing new products for the Gap brand, but Chief Executive Officer Art Peck stopped short of saying that the brand was in a turnaround. "I've called the turn before. And I've eaten my words. I'm not calling a turn again. What I'm looking forward is a period-over-period improvement, and I'm quite confident and comfortable with what I'm seeing." Gap, Athleta, Banana Republic and the remaining brands will be part of a yet-to-be-named company. The separation of Old Navy into a publicly listed company, which Gap said will be tax-free to investors, is likely to be completed by 2020. Peck will hold the same position in the new company, while Old Navy CEO Sonia Syngal will stay on as head of the standalone firm. Old Navy has annual sales of about $8 billion, while the other brands have combined revenue of $9 billion. "Although the proposed spin at Old Navy will enable a sharpened strategic focus on its business priorities, it reduces the diversification the brand provides to the overall entity," said Moody's analyst Christina Boni. The company's shares were up 24.8 per cent at $31.70 in extended trading. Poor holiday performance Separately, Gap reported a surprise drop in overall same-store sales for the holiday quarter, down 1 per cent compared with analysts' average estimate of a 0.3 per cent rise, according to IBES data from Refinitiv. Ironically, the lack of same-store sales growth at Old Navy hurt fourth-quarter overall sales. The company blamed an absence of new products and macro-economic issues for a drop in traffic to the Old Navy stores during the crucial December shopping season. Gap also warned that it expects the first half of 2019 to be more challenging than last year, due to a cold start to the year that weighed on all its businesses, particularly Old Navy.

Gap to separate Old Navy brand, close stores; shares soar 25 per cent

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Gap CEO exiting as forecast cut casts doubt on turnaround

Gap to separate Old Navy brand, close stores; shares soar 25 per cent